The alleged betrayal described in these photos, texts, and emails cost Snapchat $158 million

When Snap Inc.
filed its IPO papers with the SEC last night, it ended one of the
most tantalising mysteries in tech: What happened to the third
founder of Snapchat, the Stanford student who allegedly invented
the concept, designed the ghost logo, and helped recruit the
company's current CTO?

And, perhaps more crucially, how much did his cofounders Evan
Spiegel and Bobby Murphy pay him to go away?

The money was sent in a series of payments, the last of which was
$107.5 million, paid in 2016, according to the IPO.

The story of how Snap ended up paying Brown to disappear is like
a heartbreaking high-school drama. It involves three friends who
came up with an idea for a sexting app in the summer of 2011.
They quickly realised that the app was going to be very, very
successful. But the whole thing fell apart when one of the
friends - Brown - overheard a conversation between the other two,
and came to believe they were plotting to secretly oust him from
the business.

Brown responded by withholding Snapchat's patent documents from
Spiegel, and ultimately suing Spiegel and Murphy for his stake in
the company.

Many of the photos, texts and emails from the early days of the
founding of Snapchat were saved and disclosed in the litigation
that led to the $158 million settlement.

This is how it all went down.

The summer of Snapchat

caption

The Los Angeles neighborhood near the Santa Monica beach where Snapchat was founded.

source

Google

It was becoming unbearable inside the house on Toyopa Drive, just
blocks from the beach near Santa Monica.

Frank "Reggie" Brown IV was staying there with his two college
buddies, Evan Spiegel and Bobby Murphy. Rather than
taking the summer off, the trio was working furiously on a new
iPhone app. Everyone who saw it agreed it was going to be a huge
hit.

Six years later, their company would file for an IPO and be
valued at $25 billion.

But as the summer of 2011 wore on, the tension between Brown and
his partner-roommates grew. He began eavesdropping on their
conversations about him, according to a lawsuit filed in a Los
Angeles court. He overheard that his friends had agreed to cut
him out of the company. Even though the app was his idea, Brown
came to believe that he was about to be betrayed.

They had stabbed him in the back, he says.

He would make them pay.

This is how Snapchat - and the most significant startup lawsuit
since the Winklevosses sued Mark Zuckerberg over Facebook - was
born. That one eavesdropped conversation inside the Toyopa Drive
house would eventually cost Snapchat $158 million.

Snapchat began in California, in 2011, when Brown decided to stay
with his college buddy Evan Spiegel, in Spiegel's father's house
on Toyopa Drive, for the summer. They moved in together sometime
after school ended, and were deep into the Snapchat project by
July.

The pair became friends in the Kimball Hall dorm rooms at
Stanford University, where Brown studied English and Spiegel
studied product design.

The entire project - and the summer in the Toyopa Drive house -
had started as nothing more than a conversation just a few weeks
earlier, that spring: What if there was a way to send someone a
photo which then disappeared almost immediately, thus keeping the
sender in control of their own images?

Brown and Spiegel became obsessed with the idea.

According to Brown, the two original founders of Snapchat were
Brown and Spiegel. Only later did they recruit a third Stanford
student, Bobby Murphy, to help code and create the app, according
to Brown. Murphy had studied math and computer science, also at
Stanford. This distinction, and the disgreement over it, would
turn out to be costly.

The three had a lot in common. They all went to Stanford. They
had lots of friends in
the Kappa Sigma fraternity there. They addressed each other
as "dude," "dawgg" and "bro." Brown looked like he had walked out
of an Abercrombie & Fitch catalog: thick blonde hair, and
beefy good looks. Spiegel and Murphy were skinnier. While Spiegel
had the wiry frame of an athlete, Murphy, with darker hair, was
so slight he still looks like a young boy in photographs.

The app they built allowed people to send self-deleting photos,
fixing the problem of having embarrassing pictures - sexts,
mostly - come back to haunt you.

But as the summer wore on, tempers inside the house on Toyopa
Drive grew. Brown discovered that in fact Spiegel and Murphy had
become the closer pair.

The app launched in the iTunes App Store that July. It was an
instant hit. On July 23, Spiegel texted Brown to say the app was
taking off: "this thing is a rocket ship."

The rocket ship, however, was about to fall apart.

The eavesdropper

caption

The notes Brown wrote to himself while allegedly eavesdropping on Spiegel and Murphy as they allegedly cut him out of the equity in Snapchat.

source

LA Superior Court

Spiegel and Murphy quietly began discussed cutting Brown out of
the company, Brown alleged. Brown's official title was chief
marketing officer, but they wanted to replace him.

What they didn't know was that Brown was listening to the
conversation, and taking notes, according to papers filed in a
Los Angeles County lawsuit.

The details of exactly how Brown heard their talks aren't clear.

But as the pair talked, Brown listened, and scribbled his
contribution to the company in a bullet-pointed list - and what
he would do if he didn't get equity. According to a copy of the
note, he came up with the "initial idea" for the app, the name,
and the ghost logo design. Then, he wrote:

"California Law ... Lawsuit is Possible."

A confrontation was now inevitable: Brown had thought Spiegel and
Murphy were his friends, his fraternity brothers at Stanford.

He was wrong.

The "scheme"

caption

Texts from Spiegel to Brown.

source

LA County Superior Court

Brown kept quiet for several
more days.

He had what would later be described as a "scheme" by his former
partners, according to court papers filed by Snapchat's current
management. He would have to wait before he confronted them about
their alleged betrayal.

The basic claims in the lawsuit are that Brown believed he was
one of three founders of Snapchat, and that Spiegel and Murphy
unfairly cheated him out of ownership of the app even though the
original idea was his.

Snapchat is now worth a staggering $25 billion. It is one of the
fastest-growing Internet services in history. It has a big,
fast-growing user base, and users mean money - $405 million in
revenues in 2016.

Brown's suit became the biggest startup founder case since the
Winkelvoss twins settled with Facebook founder Mark Zuckerberg,
in a deal worth about $300 million, over their claims that
Zuckerberg stole the idea for an online college "face book."

The birth of Snapchat

caption

Kimball Hall on the Stanford campus.

source

Google Street View

The idea for
Snapchat was born in the spring of 2011, according to Brown's
suit. The exact origins are hazy, but it appears to have emerged
from a conversation that Brown and Spiegel had while at Stanford,
in the Kimball Hall dorms.

"We should make an application that sends deleting picture
messages," Brown alleges he told Spiegel.

Spiegel replied it was a "million dollar idea."

Spiegel and Murphy deny that Brown originated the idea for the
app.

They shook hands, the suit states. "That night, the two began
searching for a computer 'coder' to join in developing the
application. They then started interviewing a number of potential
coders, including fellow Stanford students," according to Brown's
suit.

Murphy fit the bill. He was Spiegel's friend, and the two had
previously worked together on a failed project called
"FutureFreshmen."

Much later, "FutureFreshmen" would turn out to play a key role in
the ouster of Brown from Snapchat, although none of the three
knew that yet.

As the project got rolling, the three took on distinct roles.
Murphy, the newcomer, became the CTO. Spiegel was the CEO. And
Brown was the chief marketing officer.

Brown assumed they had each had a one-third interest in Snapchat.

His assumption was incorrect.

"Ghostface Chillah"

caption

Snapchat's original iTunes App Store listing.

source

Los Angeles County Court

One
of Brown's first projects was to come up with a logo for the
company. He decided on a ghost, nicknamed "Ghostface Chillah."
That is still Snapchat's logo today. "Brown created this logo by
directing Spiegel on what to draw, while the latter implemented
Brown's direction on Adobe InDesign," the lawsuit claims.
Brown claims he did a lot of the grunt work for Snapchat,
including authoring the terms of service, writing its privacy
policy, the FAQ, marketing, offering language for iTunes, and he
devised the name of the company that initially owned Snapchat,
"Toyopa Group," after the name of the street they were living on.

At the time, they had christened the app "Picaboo" or "Pictaboo,"
after the child's game in which you alternately hide and reveal
your face. The "boo" part explains the ghost. It also neatly ties
in with the idea of photos not "haunting" you later. Brown claims
"Picaboo" was his idea, too.

Brown claims "Picaboo" was his idea, too.

The app went live in iTunes on July 8, 2011.

"Yo, gurl, here's an iPhone app I think you'd love"

source

LA Superior Court

All that month, Brown and
Spiegel emailed friends and bloggers they knew, asking them to
try the app.

James immediately guessed that the app's main purpose was to make
sexting safe:

source

LA Superior Court

Early drafts of a press release, allegedly written by Brown, were
even more juvenile. This one addressed women as "betches," a
slang pronunciation of "bitches":

source

LA County Superior Court

This amateurish beginning spawned a huge success.

Snapchat's IPO could be the third most valuable IPO of all time,
behind Alibaba and Facebook.

A birthday party - with cake

caption

The founders of Snapchat celebrate its launch with a cake featuring the ghost logo: Reggie Brown, Bobby Murphy and Evan Spiegel.

source

LA County Superior Court

The guys were psyched. They planned a
celebration.

On July 17, the three celebrated the "birth" of the company with
a cake and candles. Spiegel's girlfriend took a picture -
ironically, it was not deleted - of the cake. It featured the
ghost logo in yellow icing, as the three men stood behind it,
arms on each other's shoulders. She emailed it to them with the
message, "The launch of something great!"

The image will be difficult to refute:

Brown was there.
At the beginning.
One of three.

The patent

source

LA County Superior Court

Snapchat took off so quickly Spiegel began
worrying that a rival company might copy their product. It was
imperative that they get a patent application filed quickly,
legally establishing that they were first with the idea.

Brown - who was studying to go to law school - was entrusted with
the patent filing. On July 23, Spiegel texted Brown, "People know
we don't have a patent so we gotta jump on that shit haha let me
know if we can do anything to help ... this thing is a rocket
ship."

Even Spiegel's father seemed excited about the app. Brown's mom
had contacted him to ask how her son was doing. Spiegel senior
sent a message back:

"It is delightful to have Reggie with us this summer as he, Evan
and Bobby work on their startup … Reggie is drafting his first
patent application, so he is on his way to being a lawyer!"

Those words would come back to haunt Spiegel junior: his own
father seemed to believe the app was a joint project of the
three.

By early August, however, Spiegel and Murphy appear to have had a
change of heart.

Snapchat's future was not going to include Brown.

The name change

caption

Evan Spiegel's father's message to Reggie Brown's mom.

source

LA County Court

When the three men began
working on Snapchat back in June, they formed a company. They
named it Toyopa Group, after the street they were living on when
they developed the app. Brown claims he came up with the name.

What Spiegel and Murphy knew, but Brown alleges he did not, is
that back in June a new company had not actually been
formed. Rather, Spiegel and Murphy had merely changed the name of
their previous company, "FutureFreshman," to Toyopa Group.

Toyopa Group was the new, legal owner of Snapchat, the lawsuit
papers state. But Brown was not among its equity holders. Toyopa
was owned 60/40 by Spiegel and Murphy. Brown wasn't even named in
the papers, according to a deposition transcript in the case.

Brown has testified that when the Toyopa Group papers were drawn
up, he simply assumed he owned a third of the company. The three
men were, after all, its only employees and they all lived
together in the same house, working on the same project, which
was - allegedly - Brown's original idea.

Murphy testified in a deposition that Brown was a mere
functionary of the company, and never an owner:

"I don't know what he believed. All I know is that, again, he was
invited to join us that summer, do some work."

Brown, of course, finally figured out the true structure of
Toyopa Group when he overheard Spiegel and Murphy deciding that
he had to go, in early August.

The confrontation

caption

Texts from Spiegel to Brown.

source

LA Superior Court

Brown listened
in on their conversation, and took notes, according to legal
papers filed by Snapchat's management.

Knowing he was about to be betrayed, Brown kept silent. Instead,
on Aug. 11, 2011, Brown filed a patent application with the U.S.
Patent and Trademark Office. It listed all three of them as equal
co-creators of the app.

It was a huge milestone for the company, establishing Snapchat as
the progenitor of self-deleting photo messages. Brown texted
Spiegel:

"... you and Bobby need to celebrate this shiz tonight."

Spiegel replied:

"No chance were celebrating wo you bro."

Brown did not, however, give Spiegel or Murphy copies of the
patent papers he had filed. He kept those for himself.

As Spiegel nagged Brown for copies of the filing, and as Brown
stewed over his secret knowledge, the tension came to a head
within the house on Toyopa Drive.

A few days later, on Aug. 16, the three men confronted each other
on a conference call. Brown was in the upstairs part of the
house. It is not clear from the lawsuit who was in the house and
who was not, or why they didn't meet face to face. (They had been
drinking, Brown said in a deposition.)

Spiegel wanted to know why Brown had not given him a copy of the
patent filing. Brown wanted to know how big his slice of the
company's equity was. Murphy mostly listened.

The conversation did not go well.

The gloves come off

caption

Spiegel admits to Brown that he may have had a role in the genesis of Snapchat.

source

LA County Superior Court

Brown recalls it this
way:

"I mean, Evan was acting irrationally, like I mentioned, earlier
in the night. And I didn't know what he was going to do, you
know... I mean, I didn't want to, you know, walk downstairs and
try to say, you know, 'What the' -- 'What the hell are you guys
talking about' and start some type of, you know -- escalate the
situation. I was removing myself from the situation."

Brown alleges he was willing to take the short end of a 20/40/40
split. He did not get an agreement. The next morning, however,
they made up, Brown said in a deposition:

"I was sitting outside. And, you know, they came outside, and we
all had, you know, a discussion about what happened. You know,
Evan apologized. He said that he was acting irrationally. ... I
agreed. I said, 'Yes,' you know, 'I really think you were.' And
things were fine, you know. We all apologized. It was cool."

Spiegel texted Brown a few days later:

"I want to make sure you feel like you are given credit for the
idea of disappearing messages because it sounds like that means a
lot to you."

That text is crucial to Brown's case: It shows Spiegel admitting
that Brown should get credit for the idea of Snapchat. But there
is wiggle room, too - all Spiegel is saying is that Brown should
get a plaudit. He's not actually admitting that Brown was owed
equity.

Murphy had a different take:

"... Evan and I had a prior conversation in which we expressed
concern that he would ask for equity. And we knew that he had the
original patent applications in his control. So in that phone
call we wanted to hear what he thought he was entitled to given
the work -- given the work he had done. He would, I say,
exaggerate that. And Evan hung up and I think he -- I don't
remember specifically what he was asking for, but it was a lot
more than we would be willing to give him."

"And in that he claimed he had created the original idea and that
he had designed the ghost. ... I think Reggie used the term, 'I
directed your talents,' or something to that effect, and that's
what upset Evan."

Spiegel hung up the phone when he heard that Brown thought he was
directing his talent. Bobby stayed on the line. Ultimately,
Murphy says Brown was told that as far as equity in Toyopa was
concerned, "That's not gonna happen."

Spiegel and Murphy changed the passwords on Snapchat's server and
user accounts. Brown was locked out.

What happened to the patent?

From that point, communications became more formal, the papers in
the lawsuit indicate. There was no more "dude" or "dawgg." Brown
and Spiegel communicated by email, in proper English. Spiegel
wanted copies of the patent filing:

source

LA Superior Court

Brown declined to send the copies, insisting instead that Spiegel
should only get the final, approved copy back from the
government:

source

LA County Superior Court

Brown was traveling. He didn't graduate from Stanford until 2012.
He left the house after Aug. 17, leaving behind some of his
property, the suit claims.

The damage was done. The relationship between Brown and the other
two founders of Snapchat was over.

Time went by.

"I am willing to negotiate on this."

caption

Reggie Brown's long, post-fight email to Evan Spiegel

source

Techcrunch / LA Superior Court

On May 8, 2012, Brown wrote a long email to Spiegel, rehashing
their fight on the night of Aug. 16, 2011. In the message, Brown
claims that Evan and Murphy did not in fact own the intellectual
property that is Snapchat:

"I am not sure if this were due to the fact that you felt that I
was withholding information from you- as that was certainly not
my intention. I have always respected your role in the process,
primarily as a leader, a designer, and a friend. In that way, if
I disrespected your contribution, I apologize. As I expressed to
Bobby this past summer, I understood both then and currently that
my role in the process was of a different nature, and thus was
willing to accept a significantly less portion of equity than
either of you. Unfortunately, the discussions lead to you
changing the passwords to the accounts and servers, limiting any
continued involvement on my part and cutting off communication."

"In the summer we had discussed a 40-40-20 equity breakdown; I
am, however, willing to negotiate on this."

At some point in 2012, it is not clear exactly when from the
court file, Spiegel and Murphy hired the Cooley law firm to
represent them. Cooley sent Brown a letter, which said in
substance that Brown's handling of the patent, followed by his
demand for a share in Snapchat, was:

"A transparent attempt to shakedown Mr. Spiegel and Mr. Murphy
for a share in a company to which you contributed nothing."

In fact, Spiegel and Murphy argued in response to the suit, Brown
was kicked out of the company because they became suspicious when
he repeatedly declined to hand over copies of the patent filing.
"Spiegel and Murphy excluded Brown from further involvement due
to his duplicity," their side of the case states.

The fundamental split between developers and management

caption

One of Snapchat's patent diagrams.

source

LA Superior Court

Brown potentially
stands to win damages in the hundreds of millions of dollars, so
it is perhaps not surprising that the litigation has been of the
"scorched earth" variety.
Brown's lawyers unsuccessfully challenged Snapchat's lawyers
on whether they have a conflict of interest that prevented them
from representing the company.

On a factual basis, Brown has put up a good argument that he was
intimately involved in the genesis of the app. He was involved in
the "idea," the name of the company, its logo and its patent
filing.

But his role at Snapchat militates against him, also.

Anyone can have ideas.

Brown was not involved in the building of the actual
software product, the lawsuit alleges. None of the evidence
indicates Brown was involved in the engineering, the coding, the
development, of the app.

Nonetheless, his work was crucial - he was the only one of the
three founders with enough knowledge to handle a USPTO patent
application.

By contrast, Spiegel and Murphy apparently spent the summer of
2011 writing code and making sure the app worked.

It's a familiar tension in the tech world. There are those who
build the products, and those who manage the work that's being
built. Naturally, developers resent their non-technical managers
and supervisors. But few companies survive without managers who
make sure the trains run on time, and file patents before their
competitors.

The case sets a standard in the tech and startup community. It
shows, as stated by Brown's lawyers, that not being clear from
the beginning about who owns a new company can cost end up
costing you a lot of money:

"This is a case of partners betraying a fellow partner."

The alternative interpretation was Spiegel and Murphy's take,
that Brown was an exaggerator, a hanger-on, who deserved nothing:

"Knowing he had no agreement to share in the equity of Toyopa,
and having noted to himself 'lawsuit possible,' Brown sought to
hijack ownership rights he knew he did not possess by secretly
filing an application that (1) claimed the entirety of the
disappearing messages application, not just the screen capture
detection technology; (2) listed himself as an inventor.

The settlement took years to work out.

But the $158 million deal was larger than the amount Mark
Zuckerberg initially agreed to pay the Winkelvoss twins - $65
million - for their role in the creation of Facebook at Harvard.